Ron Larson
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Chapter 5 Review Exercises

Chapter 5 Review Exercises
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  • 23. Finding Social Security Tax

    Joe and Carolyn have been married for 45 years. In 2010, Joe retired at his full retirement age, 66. During his last year of employment, Joe had an income of $58,000. The Social Security Administration calculates that Joe's average indexed monthly earnings (AIME) is $3226.

    During his last year of employment, how much should Joe have paid in Social Security tax?

    • Worked-Out Solution

      In 2010, the rate for Social Security contribuiton was 6.2% for employees and 6.2% for employers. If Joe was employed, he would have paid

      in Social Security taxes. His employer would have paid the same amount towards Joe's Social Security taxes.

      If Joe had been self-employed, then he would have paid the full amount by himself.

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       _____     ___     _    _    __   __   ______   
  / ___//   / _ \\  | \  / ||  \ \\/ // |      \\ 
  \___ \\  / //\ \\ |  \/  ||   \ ` //  |  --  // 
  /    // |  ___  ||| .  . ||    | ||   |  --  \\ 
 /____//  |_||  |_|||_|\/|_||    |_||   |______// 
`-----`   `-`   `-` `-`  `-`     `-`'   `------`
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  • 24. Finding Medicare Tax

    Joe and Carolyn have been married for 45 years. In 2010, Joe retired at his full retirement age, 66. During his last year of employment, Joe had an income of $58,000. The Social Security Administration calculates that Joe's average indexed monthly earnings (AIME) is $3226.

    During his last year of employment, how much should Joe have paid in Medicare tax?

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     _____       ___      _  __     ___      _____   
|  __ \\    / _ \\   | |/ //   / _ \\   / ____|| 
| |  \ ||  / //\ \\  | ' //   | / \ || / //---`' 
| |__/ || |  ___  || | . \\   | \_/ || \ \\___   
|_____//  |_||  |_|| |_|\_\\   \___//   \_____|| 
 -----`   `-`   `-`  `-` --`   `---`     `----`
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  • 25. Social Security Benefit Formula

    Joe and Carolyn have been married for 45 years. In 2010, Joe retired at his full retirement age, 66. During his last year of employment, Joe had an income of $58,000. The Social Security Administration calculates that Joe's average indexed monthly earnings (AIME) is $3226.

    Use the Social Security benefit formula on page 241 to estimate Joe's primary insurance amount (PIA).

    • Worked-Out Solution

      The completed formula is shown below.

      So, Joe will receive $1473 in Social Security benefits each month.

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     _    _    _    _    _    _    _    _     ______  
| || | || | || | || | \  / || | || | ||  /_   _// 
| || | || | || | || |  \/  || | || | ||    | ||   
| \\_/ || | \\_/ || | .  . || | \\_/ ||   _| ||   
 \____//   \____//  |_|\/|_||  \____//   /__//    
  `---`     `---`   `-`  `-`    `---`    `--`
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  • 26. Social Security Benefits

    Joe and Carolyn have been married for 45 years. In 2010, Joe retired at his full retirement age, 66. During his last year of employment, Joe had an income of $58,000. The Social Security Administration calculates that Joe's average indexed monthly earnings (AIME) is $3226.

    Suppose Joe retired at age 62. How long would Joe have to live to make waiting for full benefits more economical? Assume a 3% cost-of-living increase each year.

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      _____     _____    __   _     ______    ____    
 |__  //   |  ___|| | || | ||  /_   _//  |  _ \\  
   / //    | ||__   | '--' ||   -| ||-   | |_| || 
  / //__   | ||__   | .--. ||   _| ||_   | .  //  
 /_____||  |_____|| |_|| |_||  /_____//  |_|\_\\  
 `-----`   `-----`  `-`  `-`   `-----`   `-` --`
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  • 27. Qualifying for Social Security Benefits

    Joe and Carolyn have been married for 45 years. In 2010, Joe retired at his full retirement age, 66. During his last year of employment, Joe had an income of $58,000. The Social Security Administration calculates that Joe's average indexed monthly earnings (AIME) is $3226.

    Carolyn has always been a homemaker and has never paid Social Security tax. Will she qualify for Social Security retirement benefits? Explain.

    • Worked-Out Solution

      No, Carolyn does not qualify to receive Social Security benefits.

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      _____    __   __    _____      ___      _____   
 |__  //   \ \\/ //  / ____||   / _ \\   / ____|| 
   / //     \ ` //  / //---`'  | / \ || / //---`' 
  / //__     | ||   \ \\___    | \_/ || \ \\___   
 /_____||    |_||    \_____||   \___//   \_____|| 
 `-----`     `-`'     `----`    `---`     `----`
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  • 28. Survivors Benefits

    Joe and Carolyn have been married for 45 years. In 2010, Joe retired at his full retirement age, 66. During his last year of employment, Joe had an income of $58,000. The Social Security Administration calculates that Joe's average indexed monthly earnings (AIME) is $3226.

    Use the Internet to research qualifications for survivors benefits through Social Security. Suppose Joe dies before Carolyn. Will Carolyn qualify for survivors benefits? Explain.

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     ______      ___      _  __     ___    __    __  
|      \\   / _ \\   | |/ //   / _ \\  \ \\ / // 
|  --  //  | / \ ||  | ' //   | / \ ||  \ \/ //  
|  --  \\  | \_/ ||  | . \\   | \_/ ||   \  //   
|______//   \___//   |_|\_\\   \___//     \//    
`------`    `---`    `-` --`   `---`       `
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  • 29. Economic Dependency Ratio

    Joe and Carolyn have been married for 45 years. In 2010, Joe retired at his full retirement age, 66. During his last year of employment, Joe had an income of $58,000. The Social Security Administration calculates that Joe's average indexed monthly earnings (AIME) is $3226.

    How might the economic dependency ratio affect Joe's retirement benefits in the future?

    • Worked-Out Solution

      No one knows the answer to this question. If the economic dependency ratio continues to drop, then it is possible that the tax burden on working people will be great enough that Social Security benefits might be lower. Because of the voting power of retired people, most people see this as unlikely. It seems more likely that the retirement age will be raised or that non-retirement benefits will be cut.

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       _____     ___      _  __     ___     ______   
  / ___//   / _ \\   | |/ //   / _ \\  |      \\ 
  \___ \\  | / \ ||  | ' //   / //\ \\ |  --  // 
  /    //  | \_/ ||  | . \\  |  ___  |||  --  \\ 
 /____//    \___//   |_|\_\\ |_||  |_|||______// 
`-----`     `---`    `-` --` `-`   `-` `------`
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  • 30. Economic Dependency Ratio

    How might the economic dependency ratio affect the qualifications for Social Security retirement benefits in the future?

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      ______   _    _     ______     ___      _____   
 /_____// | || | ||  /_   _//   / _ \\   |__  //  
 `____ `  | || | ||    | ||    / //\ \\    / //   
 /___//   | \\_/ ||   _| ||   |  ___  ||  / //__  
 `__ `     \____//   /__//    |_||  |_|| /_____|| 
 /_//       `---`    `--`     `-`   `-`  `-----`  
 `-`
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